Maria Chavez owns a catering company that serves food and be

Maria Chavez owns a catering company that serves food and beverages at parties and business functions. Chavez\'s business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times. One of the major events Chavez\'s customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest as follows Food and beverages Labor (0.5 hour e ?10.00 /hr.) Overhead (0.5 hour $18.66/hr.) Total cost per guest 17.00 5.00 9.33 $ 31.3.3 The standard cocktail party lasts three hours and Chavez hires one worker for every six guests so that works out to one-half hour of labor per guest. These workers are hired only as needed and are paid only for the hours they actually work when bidding on cocktail parties, Chavez adds a 13% markup to yield a price of about $40 per guest. She is confident about her estimates of the costs of food and beverages and labor but is not as comfortable with the estimate of overhead cost. The $18.66 overhead cost per labor hour was determined by dividing total overhead expenses for the last 12 months by total labor- hours for the same period. Monthly data concerning overhead costs and labor-hours follow: Overhead Expenses 50,000 54,000 55,000 59,000 62,000 66,000 69,000 72,000 70,000 Labor- Month January February March April May June Hours 3,000 2,100 2,300 3,500 3,800 4,800 5,800 6,800 6,300 Ll August September

Solution

Answers

n

x

y

X2

xy

January

3000

50000

9000000

150000000

February

2100

54000

4410000

113400000

March

2300

55000

5290000

126500000

April

3500

59000

12250000

206500000

May

3800

62000

14440000

235600000

June

4800

66000

23040000

316800000

July

5800

69000

33640000

400200000

August

6800

72000

46240000

489600000

September

6300

70000

39690000

441000000

October

3800

63000

14440000

239400000

November

3400

59000

11560000

200600000

December

5800

67000

33640000

388600000

12

51400

$    746,000.00

2.48E+08

3308200000

n

12

?x

51400

?y

746000

?x2

247640000

?xy

3308200000

Unit Variable Cost = b = [ (n ?xy) - (?x. ?y) ] / [(n?x2 ) – (?x)2]

[ (n ?xy) - (?x. ?y) ] = N [Numerator]

[(n?x2 ) – (?x)2] = D [Denominator]

----Solving for value of ‘b’ = Variable cost per hour

N [Numerator]

=

(n

x

?xy)

-

(?x

x

?y)

N [Numerator]

=

12

x

3308200000

-

51400

x

746000

N [Numerator]

=

39698400000

-

38344400000

N [Numerator]

=

1354000000

D [Denominator]

=

(n

x

?x2)

-

(?x)2

D [Denominator]

=

12

x

247640000

-

2641960000

D [Denominator]

=

2971680000

-

2641960000

D [Denominator]

=

329720000

b

=

N

/

D

b

=

1.354E+09

/

329720000

b

=

4.106514618

-------HENCE, Variable cost ‘b’ = $ 4.11 per labor hours

Total Fixed Cost = a = [ (?y) – (b?x) ] / n

[ (?y) – (b?x) ] = N1 [Numerator]

---Solving value of ‘a’: Fixed Cost

N1 [Numerator]

=

?y

-

(b

x

?x)

N1 [Numerator]

=

746000

-

4.11

x

51400

N1 [Numerator]

=

746000

-

211254

N1 [Numerator]

=

534746

a

=

N1

/

n

a

=

534746

/

12

a

=

44562

-------HENCE, Fixed cost ‘a’ = $ 44,562.00

Y [total cost] = a [fixed cost] + b [variable cost per unit] X

Y = $ 44,562 + $ 4.11 X

n	x	y	X2	xy
January	3000	50000	9000000	150000000
February	2100	54000	4410000	113400000
March	2300	55000	5290000	126500000
April	3500	59000	12250000	206500000
May	3800	62000	14440000	235600000
June	4800	66000	23040000	316800000
July	5800	69000	33640000	400200000
August	6800	72000	46240000	489600000
September	6300	70000	39690000	441000000
October	3800	63000	14440000	239400000
November	3400	59000	11560000	200600000
December	5800	67000	33640000	388600000
12	51400	$    746,000.00	2.48E+08	3308200000